New scary HUD rules

Private Lending & Conventional Mortgage Advice
16yFollow

New scary HUD rules

Rosanna Sampson
Real Estate Investor · charlton, MA · Member since 2009 · 2 posts · 6 votes

Hi Everyone,

Got this message from Boston REIA and thought everyone should know about it.

Rosanna

Dear REIA Members:

The following information is extremely important!
HUD has proposed to eliminate ALL seller financing unless the seller lives in the home or becomes a licensed mortgage originator. The proposed HUD Rules interpreting the federal SAFE mortgage act can be viewed at

www.regulations.gov Use the search parameter "HUD" and the keyword "safe". Please review and comment regarding the impact of this broad interpretation of the law.
"In addition to establishing HUD's responsibilities under the SAFE Act, through this rule, HUD proposes to clarify or interpret certain statutory provisions that pertain to the scope of the SAFE Act licensing requirements, and other requirements that pertain to the implementation, oversight, and enforcement responsibilities of the States. HUD solicits comment on the proposed clarifications and on the regulations proposed to be codified."

History:
As you may recall, we lobbied hard last year to maintain the right for individuals to make up to five seller financed transactions per year before being subject to mortgage originator licensing, etc... However, that law was passed subject to the Department of Housing and Urban Development's (HUD) approval of the law as "compliant" with the intention of the federal law. If any state does not have a compliant law, the SAFE act allows HUD to implement licensing for the state. HUD has since issued proposed rules. In a nutshell, seller financing would no longer be allowed for non-owner occupied homes.

How YOU can help:
We learned about the publishing of the rules very late in the process... and the deadline for comment is upon us on February 16. However, we desperately need for thousands of REIA members across the country to go on record with HUD on this issue. We will be working to try to affect this law in other legislative ways, but cannot hope to gain traction unless our members have clearly communicated that they are opposed to this portion of the rules. This is your chance to be counted on this issue.

PLEASE SUBMIT YOUR COMMENTS TO HUD! We have less than one week to flood this system with comments.

Follow these simple steps:

1. Logon to www.regulations.gov You will see two white boxes for searching
2. On the left box labeled "Document Type", pull the menu down and select "proposed rules"
3. On the right box labeled "Enter keyword or ID", enter "safe mortgage". Then, press search
4. Locate the blue search result "FR-5271-P-01 Safe Mortgage Licensing Act: HUD Responsibilities Under ...." To read the rules, click on this title. You will be taken to another page. You will see "views". You can click on PDF file or another symbol which will show you the rule document online.
5. On the right of the screen, click on "submit comment"
6. Complete the form providing required information and your comments and then submit

What do you say?
Say what you feel, but say it politely! The message should include that you would like the definitions in the proposed rules to be changed so that private individuals can originate and service loans on properties they personally own. Some ideas from others:

· bank loans are not available on some types of properties
· the tight lending climate has made bank financing "out of reach" for many
· seller financing is an "age old" tradition based on private property rights
· these rules would prohibit even partial seller financing - i.e. a "seller second"
· according to HUD's "Residential Finance Survey" in 2001, roughly 40% of all non-farm residential properties in the US are owned free and clear
· an estimated 6 million Americans own a property other than their own primary residence
· an estimated 4.5% of Americans own three or more properties, many purchased solely as investment properties
· 40% of non-owner occupied residences are mobile homes which are more difficult to sell with bank financing
· approximately 5% of homes in US are for sale or for lease... seller financing may be key to liquidating this inventory

The continued success of our industry as we know it is threatened by these proposed regulatory changes. Please do not hesitate to follow the steps above and make your voice heard.

6Reply
232 views

Most Popular Reply

Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y

Hi Rosanna has a very good outline above. Everyone on this site needs to comment on one issue, more if you can. Space is limited in the HUD site.
Key issues include all the points above, but saying something like they are violating my rights will not weigh heavily on theri hearts. Limiting the ability of buyers to purchase will, since HUD has a long standing acceptance for home ownership with lease options with Section 8 tenants. Other points being that financing limits established tax treatments, financial and retirement planning, funding of self directed IRAs, etc. Just some ideas.

Be polite, factual and show why a mortgage originator won't work due to lack of experience, knowledge, availability of such people, etc. How are non-profits going to operate? Will Habitat for Humanity need a mortgage originator for their deals and those people will have to meet such guidelines?

Please take the time to make a comment, you may think it won't effect you, but it will as it will effect the end buyers that ultimately take you out of your deal or will be the basis of your deal closing at all. Bill

3Reply
See this reply in the discussion

37 Replies

Jump to latestLatest
  • James Blakeley
    Wholesaler · Dallas, TX · Member since 2009 · 48 posts · 21 votes
    16y

    I will look for the code for Texas. But similar understanding of the legalize is rare. If you are not sourcing loans you are not acting as an originator, IMO. Check with your attorney. Last word, I got was sell using Trust and wait and see, what happens in the courts. It has scared a lot of money from the market. Investors do worry that a home can not be resold without seller financing. Even if you had no intention of sourcing or selling the note.

    Looking for some input from the note sector.

    0Reply
  • James Blakeley
    Wholesaler · Dallas, TX · Member since 2009 · 48 posts · 21 votes
    16y

    The commercial context implied by the taking of an "application" is also absent where an individual seller provides financing to a buyer pursuant to the sale of the seller's own residence. The frequency with which a particular seller provides financing is so limited that HUD's view is that Congress did not intend to require such sellers to obtain loan originator licenses. Accordingly, state legislation that excludes from licensing and registration requirements an individual who offers or negotiates terms of a residential mortgage loan only to the buyer or prospective buyer of the seller's residence will not be found to be out of compliance with the SAFE Act. The MSL includes this exclusion in section XX.XXX.040(3)(c).

    http://www.hud.gov/offices/hsg/ramh/safe/smlicact.cfm

    0Reply
  • James Blakeley
    Wholesaler · Dallas, TX · Member since 2009 · 48 posts · 21 votes
    16y

    Just to clarify - HUD considers owner only if you own and reside in the home offered for with seller finance.

    Great now I have to call my attorney again. We thought one property that we own can be offered with financing, every 36 months, and not that we had to live in it, or that it applied to entity the same way. Meaning that we own in several entities, which we believe are exempt if you only sell 1 property per "person" during the 36 month window.

    Don't believe it applies to creative 2nd and lessor promissary notes, how

    0Reply
  • Kenneth Johnson
    Real Estate Investor · Fremont, CA · Member since 2010 · 68 posts · 19 votes
    16y

    I went to my federally elected officials:
    Google Search:
    "elected officials in the united states by zip code"
    URL: (I Choose)
    http://action.humanesociety.org/site/PageServer?pagename=electedOfficials_federal

    I put in my five digit zip code and got email addresses for all my Fed Reps and sent them off a quickie.

    Jonathan, now send the same eloquent message you wrote in your post to our lawmakers. My missive was more to the point "Stay out of our business".

    0Reply
  • Ryan A.
    Rental Property Investor · Lisbon, CT · Member since 2008 · 120 posts · 29 votes
    16y

    Anybody hear about the National Association to Protect Private Property Rights?

    http://www.napppr.org/

    just found it on the web. Is anybody a part of this?

    I also found out that the HUD act has encouraged more than 1 bill for federal reform to limit the rights of owners.

    Checkout this article about the different legislation that is being drafted:

    http://noteinvestor.com/note-brokers/fighting-to-preserve-owner-financing-with-the-national-association-to-protect-private-property-rights/

    0Reply
  • Ali Samana
    Real Estate Investor · Frisco, TX, TX · Member since 2010 · 388 posts · 138 votes
    16y

    I know this law is not suppose to take affect until July, however, in Texas I have my realtor telling me that we can't do seller financing already. Is that true or is she mistaken?

    Also, are there any workarounds? I am fairly new, so I am still trying to understand.

    Thanks for all the help.

    0Reply
  • Ryan A.
    Rental Property Investor · Lisbon, CT · Member since 2008 · 120 posts · 29 votes
    16y

    Unless your state has passed laws controlling lending practices, your Realtor is mistaken.

    It started when HUD created the SAFE act to encourage States & banks to enact responsible lending policies.

    Then consumers who were affected by the subprime meltdown got pretty pissed and all the complaining is making our state Reps go to Congress demanding change in the Finance Sector.

    So now bills are being created to stop predatory lending (or any creativity) and change (control) how the mortgage industry operates.

    Unfortunately the bills being written (thousands of pages) do not make a distinction between the BANKS (institutions making millions from debt) and YOU (the owner offering a loan to a buyer).

    Contact your state representative and ask to have seller financing de-coupled from the following bills: HR4173 and the 'Restoring American Financial Stability Act of 2010'

    If the bills are passed, it appears a licensed loan originator will need to be used (paid) to underwrite ANY residential real estate loan. It also appears that to act as a lender, individuals will need to become certified and/or licensed as well.

    The effects will be far reaching. The time to act is now before the Fed passes these laws.

    Find your state reps here:
    http://www.senate.gov/general/contact_information/senators_cfm.cfm

    0Reply
  • Rosanna Sampson
    OP
    Real Estate Investor · charlton, MA · Member since 2009 · 2 posts · 6 votes
    16y

    This is but one example of what the rogue government that is now in place is doing. It is completely out of control in so many ways. Trying to fight it is like trying to fight the many arms of an octopus.

    0Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    16y

    Marc Faulkner has an excellent article in his blog on the SAFE HUD act.

    http://www.biggerpockets.com/blogs/241/blog_posts/6792-new-updated-safe-act-information-by-bill-mencarow-

    2Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hello All

    Well, back on point here I guess. I just read 676 pages of the Act and just skimed over Marc's post outlined above.

    First on Marc's post; All is good and well written Marc, except the definition of mortgage loan and an exemption for the extension of credit. If I sell an interest in my yacht and carry the value of that interest back, that is an extension of credit which is exempt under the SAFE Act. So, if you sell a car on lay-a-way, no problem...secure an interest in the real property sold, that will be a problem. It's also included now in the propeosed bill HR 4173.

    The SAFE Act defines the mortgage or equity lending by the virtue of holding a security interest in property collateralized. In other words, if you have a security agreement whereby the "lender" "seller" receives the property back if the "borrower" "buyer" fails to pay as agreed, you have a mortgage. Also included is any program or scheme where credit is extended on an installment sale to facilitate the transfer of title....land contracts and contract for deeds. These aspects are included in the HUD interpretation and implementation of the Act. So, if it is not your primary residence which is specifically exempted, you will be a loan originator if you structure your deal as customarily done to date.

    Now to HR 4173, THIS IS BAD NEWS....maybe.

    TITLE IV Consumer Financial Protection Agency Act
    Sec. 4002 Definitions:
    (9) Covered Person means any person (which includes all business entities) who engages directly or indirectly in a financial activity in connection with the provision of a consumer financial product or service (page 667)

    vii Leasing personal or real property or acts as agent, broker, or advisor in leasing such property if;

    (iii) the transaction is intended to result in ownership of the leased property or be transferred to the leasee, SUBJECT TO STANDARDS PRESCRIBED BY THE DIRECTOR.

    Now I was not yelling at the end, but this pretty well covers the lease option and mortgage arrangements. The last part as prescribed, certainly indicates that such an arrangement will be possible, but in a manner presecibed by the Director which certainly has not yet been established.

    Believe it or not, there are still ways to do a deal, without having a mortgage on the property or doing a lease/option as we usually have done such agreements.

    Most all of the Act is about securities dealings and institutional lenders, holding companies, securities and trading entities, not real estate investors, so if you start reading and se scary stuff, don't worry, it won't apply to you unless you or your firm is covered under the Securities Act of 1934 as amended. Remaining outside the SEC requirements will keep you out of many of the headaches that are comming.

    So long as you don't sell a block of mortgages or just buy one or sell one for your own portfolio, you should be fine, but when you get into buying a group of mortgages and having several investor partners, you're probably in trouble.

    If you own an equipment leasing company leasing bull dozers, you might have a problem if your leasee has a residual value or buy out at the end of the lease!

    Careful too, that those who provide advisory financial services to individuals (mentors and coaches) will also be covered. If you have a client who you are "teaching and advising" in real estate matters,(since RE involves financial transactions) you'll be under the gun...guess this is for the gurus working on an individual basis.

    Josh, no need to worry, publications, news letters, internet sites, etc. that are not providing specific indivdual advice are exempt. Just as financial advisory or information publications, like Money Magazine.

    I guess we will be hearing alot about this....I think it's time to start working on your representatives to provide specific exemptions or on the "to be appointed" Director. There are by the way requirements that the agency become involved in the states and obtain advice from individuals and interested groups. Let's get to work! Bill

    0Reply
  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    16y

    Good find Jon. Everyone on this thread might be interested in his blog post and anlaysis.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Sorry, another point. Advising people in a specific deal oe financial transaction is clearly included as a regulated activity. I don't know how some will want to provide specific advice on topics on BP, if it will be viewed as giving advice by the one answering a posted question ....seems it would depending on what was asked and what was advised. So I guess if questions were posted like....what if there was a guy who wanted to buy a property that was $250,000 and.... instead of saying I want to buy a property that.....we may have to watch that! Have no idea how this will be enforced! The Bill does not say "for compensation" it just says providing advisory services! Ridiculous....Bill

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free